The use of credit and debit cards is getting more expensive, and federal officials have joined the fray when it comes to consumer prices, retail practices and corporate profits.

The use of credit and debit cards is getting more expensive, and federal officials have joined the fray when it comes to consumer prices, retail practices and corporate profits.

U.S. senators recently approved their financial reform legislation, including an amendment authored by Sen. Dick Durbin, D-Ill., to regulate debit card “swipe” fees.

Fee reform is aimed at making companies like Visa and MasterCard, which control about 80 percent of the consumer card market, more accountable to consumers by enforcing lower usage fees.

Opponents of the reform — mostly Visa and MasterCard — say the fees pay for the cost of convenience and that without the revenue, other fees would take their place. Proponents say consumers and retailers are at the mercy of the financial giants, who wield entirely too much control over the additional charges.

The National Retail Federation estimates that retailers and consumers paid about $48 billion in credit and debit fees in 2008, the most recent data year available, compared to $16 billion in 2001.

Those fees naturally drive up prices, which the retail group estimates cost the average American household $427 in 2008, up from $159 in 2001.

Officials with the NRF can only estimate those numbers because Visa and MasterCard don’t release how much they make from the fees, said J. Craig Shearman, the federation’s vice president of government affairs and public relations.

“These are fees that most consumers have no idea they’re paying because they are hidden so well,” Shearman said.

‘They had no idea’

Debit card transactions typically carry a flat fee of 50 cents or less for retailers. But if customers choose to use the cards as credit, the fees can add an average of 1 percent to 2 percent to the total price.

That means on a $100 purchase, retailers lose up to $2 on every transaction. Credit card fees can be much more expensive, sometimes as high as 3 percent of the total purchase.

Officials are focusing their efforts on debit cards, the fastest-growing segment of the card market. The Durbin amendment would direct the Federal Reserve to look at the actual cost of processing the cards.

Debit cards were first introduced as ATM cards about two decades ago. When consumers started using them for direct purchases, the transactions were treated as though the consumer paid by a paper check, deducting the money from checking accounts. The use of debit cards actually saved banks the time and money for processing paper checks.

Shearman said some banks even paid retailers to accept the cards because the banks saved so much money. But as usage grew, credit card companies saw the opportunity for additional income and implemented the fees, increasing them during the last five years.

Melissa Huff, a stylist at 5 Spa in Rockford, Ill., said credit and debit card fees add up to hundreds of dollars throughout the year for her. Last year, she started asking repeat clients if they would consider paying for salon and spa services with cash or checks to avoid the fees, though she still accepts the cards.

“So many people, when I tell them, say they had no idea and that I should have told them sooner,” Huff said. “It starts catching up with you because of the popularity of the cards. Everyone uses debit and credit cards today.”

Changing the system

Part of Durbin’s amendment would make it easier for merchants to offer customers incentives to pay with cash or check — without the complex, and prohibitive, pricing rules created by Visa and MasterCard, Shearman said.

One rule is that the published price for an item has to include the fee for debit and credit card transactions. If retailers want to offer a cash or check payment incentive, there are additional rules of how the price differences have to be labeled on signs within the store and in the store’s advertising.

Merchants like gas stations have an easier time offering the incentive because they sell fewer products — basically regular, midgrade and premium gasolines.

For retailers, however, it’s not so simple.

“Think about a discount store that offers hundreds of thousands of different items,” Shearman said. “Merchants are allowed to give discounts, but the card companies have made it more difficult. Their rules and practices are constantly changing, and they’re hard to keep up with.

“The amount of time and labor in double-pricing items across multiple categories would outweigh what retailers would save,” Shearman said. “If you ask Visa and MasterCard, the law says that retailers can offer these discounts. But the devil is in the details, as they say. And those are devilish details.”

Reach Rockford Register Star staff writer Melissa Westphal at mwestpha@rrstar.com or 815-987-1341.